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Investments

9 Months Ended

Sep. 30, 2012

Note 3 – Investments

Investments available-for-sale

The amortized cost and estimated fair values of investments available-for-sale at the dates indicated are presented in the following table:

	At September 30, 2012										At December 31, 2011
				Gross		Gross			Estimated				Gross		Gross			Estimated
		Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. government agencies		$	133,254	$	1,385	$	—		$	134,639	$	197,816	$	2,436	$	—		$	200,252
State and municipal			160,736		14,373		—			175,109		160,657		12,456		(2	)		173,111
M ortgage-backed			498,560		22,278		(64	)		520,774		551,518		18,639		(13	)		570,144
Corporate debt			2,000		—		(8	)		1,992		2,000		—		(22	)		1,978
Trust preferred			1,716		—		(288	)		1,428		5,936		260		(480	)		5,716
Total debt securities			796,266		38,036		(360	)		833,942		917,927		33,791		(517	)		951,201
M arketable equity securities			723		—		—			723		100		—		—			100
Total investments available-for-sale		$	796,989	$	38,036	$	(360	)	$	834,665	$	918,027	$	33,791	$	(517	)	$	951,301

Any unrealized losses in the U.S. government agencies, state and municipal, mortgage-backed or corporate debt investment securities at September 30, 2012 are the result of changes in interest rates and are not considered credit related. These declines are considered temporary in nature and will decline over time and recover as these securities approach maturity.

The mortgage-backed portfolio at September 30, 2012 is composed entirely of either the most senior tranches of GNMA collateralized mortgage obligations ($208.3 million), or GNMA, FNMA or FHLMC mortgage-backed securities ($312.5 million). The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.

At September 30, 2012, the trust preferred portfolio consisted of one pooled trust preferred security. The pooled trust preferred security is backed by debt issued by banks and thrifts, which totals $1.7 million, with a fair value of $1.4 million. The fair value of this security was determined by a third party valuation specialist due to the limited trading activity for this security in the marketplace.

The specialist used an income valuation approach technique (present value) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The methodology and significant assumptions employed by the specialist to determine fair value included:

Evaluation of the structural terms as established in the indenture;

Detailed credit and structural evaluation for each piece of issuer collateral in the pool;

Overall default (.36%), recovery and prepayment (2%)/amortization probabilities by issuers in the pool;

Identification of adverse conditions specifically related to the security, industry and geographical area;

Projection of estimated cash flows that incorporate default expectations and loss severities;

Review of historical and implied volatility of the fair value of the security;

Evaluation of credit risk concentrations;

Evaluation of the length of time and the extent to which the fair value has been less than the amortized cost; and

A discount rate of 12.6% was established using credit adjusted financial institution spreads for comparably rated institutions and a liquidity adjustment that considered the previously noted characteristics.

As a result of this evaluation, it was determined that the pooled trust preferred security incurred credit-related other-than-temporary impairment (“OTTI”) of $23 thousand, which was recognized in earnings for the quarter ended September 30, 2012. For the nine months ended September 30, 2012 the OTTI recognized in earnings was $95 thousand. Non-credit related OTTI on this security, which is not expected to be sold and which the Company has the ability to hold until maturity, was $0.3 million at September 30, 2012. This non-credit related OTTI was recognized in other comprehensive income (“OCI”) at September 30, 2012.

The methodology and significant inputs used to measure the amount related to credit loss consisted of the following:

Default rates were developed based on the financial condition of the trust preferred issuers in the pool and the payment or deferral status. Conditional default rates were estimated based on the payment characteristics of the security and the financial condition of the issuers in the pool. Near term and future defaults are estimated using third party industry data in addition to a review of key financial ratios and other pertinent data on the financial stability of the underlying issuer;

Loss severity is forecasted based on the type of impairment using research performed by third parties;

The security contains one level of subordination below the senior tranche, with the senior tranche receiving the spread from the subordinate bonds. Given recent performance, it is not expected that the senior tranche will receive its full interest and principal at the bond’s maturity date;

Credit ratings of the underlying issuers are reviewed in conjunction with the development of the default rates applied to determine the credit amounts related to the credit loss; and

Potential prepayments are estimated based on terms and rates of the underlying trust preferred securities to determine the impact of excess spread on the credit enhancement, the removal of the strongest institutions from the underlying pool and any impact that prepayments might have on diversity and concentration.

The following table provides the activity of OTTI on investment securities due to credit losses recognized in earnings for the period indicated:

(In thousands)	OTTI Losses
Cumulative credit losses on investment securities, through January 1, 2012	$	422
Additions for credit losses not previously recognized		95
Cumulative credit losses on investment securities, through September 30, 2012	$	517

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in an unrealized loss position at the dates indicated are presented in the following table:

	At September 30, 2012
					Continuous Unrealized
					Losses Existing for:
		Number								Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		securities		Fair Value		12 months		12 months		Losses
Mortgage-backed		4	$	19,806	$	64	$	—	$	64
Corporate debt		1		1,992		8		—		8
Trust preferred		1		1,428		—		288		288
Total		6	$	23,226	$	72	$	$288	$	360

	At December 31, 2011
					Continuous Unrealized
					Losses Existing for:
		Number								Total
		of				Less than		M ore than		Unrealized
(Dollars in thousands)		securities		Fair Value		12 months		12 months		Losses

State and municipal		1	$	397	$	2	$	—	$	2
Mortgage-backed		3		5,081		13		—		13
Corporate debt		1		3,326		22		—		22
Trust preferred		1		2,467		—		480		480
Total		6	$	11,271	$	37	$	480	$	517

The amortized cost and estimated fair values of investment securities available-for-sale by contractual maturity at the dates indicated are provided in the following table. The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following table using the expected average life of the individual securities based on statistics provided by independent third party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

	At September 30, 2012				At December 31, 2011
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	10,275	$	10,406	$	65,569	$	65,972
Due after one year through five years		32,700		33,600		62,993		64,656
Due after five years through ten years		368,273		385,574		342,813		354,238
Due after ten years		385,018		404,362		446,552		466,335
Total debt securities available for sale	$	796,266	$	833,942	$	917,927	$	951,201

At September 30, 2012 and December 31, 2011, investments available-for-sale with a book value of $202.8 million and $255.4 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at September 30, 2012 and December 31, 2011.

Investments held-to-maturity

The amortized cost and estimated fair values of investments held-to-maturity at the dates indicated are presented in the following table:

	At September 30, 2012									At December 31, 2011
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. government agencies	$	59,500	$	211	$	—		$	59,711	$	54,983	$	406	$	—		$	55,389
State and municipal		146,769		6,426		(60	)		153,135		123,075		5,244		(1	)		128,318
M ortgage-backed		344		45		—			389		407		53		—			460
Total investments held-to-maturity	$	206,613	$	6,682	$	(60	)	$	213,235	$	178,465	$	5,703	$	(1	)	$	184,167

Gross unrealized losses and fair value by length of time that the individual held-to-maturity securities have been in a continuous unrealized loss position at the dates indicated are presented in the following tables:

	At September 30, 2012
					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)		securities		Fair Value		12 months		12 months		Losses
State and municipal		9	$	9,913	$	60	$	—	$	60
Total		9	$	9,913	$	60	$	—	$	60

	At December 31, 2011
					Continuous Unrealized
					Losses Existing for:
	Number								Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		securities		Fair Value		12 monhs		12 months		Losses
State and municipal		1	$	541	$	1	$	—	$	1
Total		1	$	541	$	1	$	—	$	1

The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value, and substantiates that the unrealized losses in the held-to-maturity portfolio are considered temporary in nature.

The amortized cost and estimated fair values of debt securities held-to-maturity by contractual maturity at the dates indicated are reflected in the following table. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

	At September 30, 2012				At December 31, 2011
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	10,433	$	10,635	$	18,860	$	19,203
Due after one year through five years		5,026		5,122		6,937		7,144
Due after five years through ten years		105,709		108,745		98,428		101,008
Due after ten years		85,445		88,733		54,240		56,812
Total debt securities held-to-maturity	$	206,613	$	213,235	$	178,465	$	184,167

At September 30, 2012 and December 31, 2011, investments held-to-maturity with a book value of $150.6 million and $58.7 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agency securities, exceeded ten percent of stockholders' equity at September 30, 2012 and December 31, 2011.

Equity securities

Other equity securities at the dates indicated are presented in the following table:

In thousands)	September 30, 2012		December 31, 2011
Federal Reserve Bank stock	$	8,269	$	7,530
Federal Home Loan Bank of Atlanta stock		25,371		27,328
Other equities		—		75
Total equity securities	$	33,640	$	34,933